The Design of Fiscal Rules and Forms of Governance in European Union Countries

This chapter uses a new data set on budgetary institutions in Europe to examine the impact of fiscal rules and budget procedures in EU countries on public finances. It briefly describes the main pattern of budgetary institutions and their determinants across the EU-15 Member States. Empirical evidence for the time period 1985–2004 suggests that the centralization of budgeting procedures restrains public debt. In countries with one-party governments or coalition governments where parties are closely aligned and where political competition among them is low, this is achieved by the delegation of decision-making power to the minister of finance. Fiscal contracts that require countries to set multi-year targets and that reinforce those targets increase fiscal discipline in countries with ideologically dispersed coalitions and where parties regularly compete against each other. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.